The world of finance and pensions can seem complex. However, things are relatively straightforward when it comes to saving for your retirement. In a nutshell, you regularly contribute over the long term, and your money grows to provide an income when you retire.
However, there are various types of pensions and investments available. There can be differences in opinion about which is best and what to avoid with so many options available. In this confusion, myths can spread, and some can be harmful to your retirement plans if you take them seriously. Planning for your long term future is crucial; when considering your pension, take on expert advice from a specialist such as Portafina.
This article aims to debunk five untrue myths that are commonly touted. Read on to understand the truth and avoid such myths threatening your retirement.
Myth 1. You cannot access your pension before you retire
Although this seems perfectly reasonable, and indeed it was once the case, this myth is incorrect. Following government regulations introduced in 2015, called Pension Freedoms, you may now be able to access your pension fund from age 55.
However, even though you may qualify for such pension freedoms, it may not be the best thing for your situation. Taking too much of your pension funds too early could leave you short of income when you fully retire. Before deciding, you should speak with a regulated financial advisor. They can discuss your options, so you make the best decision.
Myth 2. Pension funds need new management
As we mentioned above, the basic principle behind a pension is simple. However, that does not mean you can leave it to its own devices and expect a good return. Your pension funds get invested in the stock market, which requires management. Management fees can vary significantly between pension plans, and high costs can jeopardise your pension’s growth.
Also, depending on how your funds are invested, they may perform better or worse than other plans. If your pension is underperforming, it could erode your funds once again. If you leave your pension alone without checking and managing it, it could suffer from underperformance and high fees.
Therefore, you should check your pension regularly and take any remedial action required. You can do this yourself or consult a financial professional to assist you.
Myth 3. The State Pension is the same for everyone
Again, this is not entirely true. Everyone does receive the same State Pension as long as they have made the maximum amount of National Insurance contributions. To obtain the full State Pension, you must have made 35 years’ worth of contributions. However, these years do not need to have been consecutive. Any missing years are classed as gaps and need to be filled to receive the maximum possible amount of pension.
It is worth checking how many years you have contributed to the state pension, as it can influence your retirement decisions. You can check your entitlement on the gov.uk website.
Myth 4. Your pension is worthless when you die
This statement is incorrect. You will have contributed towards your pension for many years, if not decades. It would be heart-breaking if your money were lost on your death. The pension freedoms regulations of 2015 have made it more straightforward to pass on your pension rights to a loved one should you pass away before using it.
Ensure you inform your pension provider of the person or persons you want your money to go to should you die unexpectedly. Your pension funds are not treated the same way other assets are, and they do not attract a heavy tax burden.
Myth 5. When you change jobs, you can forget about your old workplace pension
Workplace pensions are an excellent way of saving for your retirement. Chances are, you will be automatically enrolled in a workplace pension scheme by your employer. However, you will cease paying into one workplace pension when you change jobs and start another. Therefore, there is a chance that you could lose track of the original pension funds.
Without management and receiving no ongoing contributions, your pension funds could erode over time. Also, without contributing to them, you might lose track of your pension. Either way, you could be losing out on thousands of pounds. Therefore you must keep track of old workplace pensions every time you change your job.
Pension myths can be irritating. However, at worst, they can discourage people from investing in pension schemes. If they have had this effect on you, you could be jeopardising your retirement. Hopefully, this article has set straight five potentially damaging pension myths.